Tag Archives: Dodd-Frank

This week, the House Financial Services Committee will consider an extraordinarily dangerous bill that takes many of the worst ideas concocted by Wall Street lobbyists and their political friends and combines them into one toxic package.

The bill, the “Financial CHOICE Act” (H.R. 5983) is authored by House Financial Services Chairman Jeb Hensarling (R-TX-5), and it not only rolls back key portions of the Dodd-Frank Act, it also guts regulations that came before it. If passed, it would make financial regulation even weaker than it was even prior to the 2008 crisis. It also eviscerates the Consumer Financial Protection Bureau (CFPB) mere days after the CFPB fined Wells Fargo $100 million for widespread unlawful sales practices and ordered Wells Fargo to issue full refunds to all scammed customers. With banks continuing to abuse their own customers we need MORE accountability, not less.

Recently, a former SEC trial attorney has placed a bright spotlight on the failure of his old agency to charge more individuals at Goldman Sachs over securities fraud in the “Abacus” deal. Abacus was composed of mortgage securities that Goldman knew were toxic. But they packaged them up and sold to investors anyway, and then actively bet against those investors. It is a stark example of a serious conflict of interest.

Unfortunately, not only have the bankers responsible for the conflicted deals gone unpunished, but also the Dodd-Frank rule targeted at stopping material conflicts of interest remains unfinished. (For more on why the rule is important, see AFR’s 2012 letter).

Last week, Senators Feinstein, Merkley, Markey, Boxer, Franken, Durbin, Warren and Reed sent a letter to the SEC urging them to prioritize completion of this long-neglected rule. The letter highlights that the SEC is over 1,730 days late on completing this rule:

“The SEC was directed to issue rules no later than 270 days after the enactment of Dodd-Frank. It has now been over 2,000 days since the President signed Dodd-Frank into law. This is unacceptable. We urge you to work quickly to finalize strong rules implementing Section 621.”

The letter also highlights the problem with leaving Dodd-Frank’s conflict of interest rule unfinished:

“As you know, Section 621 prohibits material conflicts of interest for those involved in structuring asset-backed securities and serves as a critical component of financial reform based on the lessons we learned from the financial crisis. The U.S. Senate Permanent Subcommittee on Investigations’ April 2011 report on the financial crisis detailed some of the transactions that were designed to fail so that the entities constructing them could bet against them and profit. This is an appalling practice that the SEC can address by releasing a strong final rule on Section 621.

Financial institutions should not be able to sell securities to investors and then bet against those same securities, to purposefully design securities or structures with the intent that they will fail or with defective components, or to mislead investors by structuring products specifically intended to benefit an undisclosed entity. These types of structures are built on deception, and withholding material information is fundamentally contrary to the efficient operation of our financial markets and to the protection of investors.”

It’s hard to make a serious argument against an agency that’s returned over $11 billion to more than 25 million Americans scammed by their financial companies. Especially when that agency, the Consumer Financial Protection Bureau, enjoys broad public support across party lines for its efforts to crack down on debt-trap loans, credit card overcharges, illegal debt collection practices and discriminatory auto lending.

That’s why the big bank lobby and its allies in Congress had to contort themselves last week to justify their attempts to hamstring the bureau. Luckily for the rest of us, their farfetched talking points didn’t sway the bureau’s defenders in Congress, and their attack fell flat.

The House Financial Services Committee was considering legislation to change the way the CFPB is led, putting it under a five-member commission – a recipe for partisan gridlock and increased industry influence – instead of a single director. The White House, along with more than 75 consumer groups, spoke out against the move. The major architects of financial reform, including Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., as well as Sen. Elizabeth Warren, also a Massachusetts Democrat, and former Rep. Brad Miller, D-N.C., made it clear that they too opposed it.

While the bill ended up passing, as expected, it did so essentially along party lines. Only two Democrats, Reps. David Scott of Georgia and Kyrsten Sinema of Arizona, voted in favor with all the committee’s Republicans – despite a major effort by Wall Street lobbyists. For weeks, they’d been telling reporters about a supposed wave of mounting support for their “bipartisan” measure, getting congressional allies like Rep. Tom Emmer, R-Minn., to spread the word in the press.

The very obvious intent of their proposal is to impede the consumer bureau’s ability to fight against abusive financial practices. To distract attention from this inconvenient truth, the bill’s defenders resorted to scaremongering. House Financial Services Committee Chairman Jeb Hensarling of Texas equated single-director leadership with North Korea, while Rep. Sean Duffy, R-Wis., called it “the Stalin model.” Both failed to mention that it was Republicans who called for a single director to head the Federal Housing Finance Agency, created in 2008, or that another bank regulator, the Office of Comptroller of the Currency, has functioned with a single director since 1863 with no calls from Congress to change it.

In the effort to gain support beyond the ranks of the usual Wall Street-friendly suspects, a few of the bill’s proponents even professed to be looking out for consumers’ interests to protect them from a hypothetical weak consumer bureau director appointed by a hypothetical future president. No actual consumer advocates have ever expressed such a concern, however: They know that an effective director some of the time is far better than a milquetoast commission all of the time.

The real impetus for this legislation comes, very obviously, from the financial industry lobby, which wants the change because it will make it easier for banks, payday lenders and debt collectors to engage in unfair, deceptive and abusive practices. And the industry is willing to spend huge amounts of campaign and lobbying money to get its way.

In 2010, Wall Street expended over $1 million a day seeking to block reforms, including the creation of the consumer bureau. That extraordinary rate of spending has continued, according to an Americans for Financial Reform report that covered the 2014 election cycle. A more recent report from the consumer advocacy organization Allied Progress shows that eight members of the House Financial Services Committee received donations from the payday lending industry within weeks of endorsing a previous attempt to subject the consumer bureau to rule by commission.

Last week, six major banking industry lobbyists did us all a favor by signing their names to a joint op-edopenly advocating for the commission bill. They claimed that they, too, were worried about what might happen, under continued single-director leadership, to “the [consumer bureau]’s work over the past four years.” Hearing that absurd argument from the leaders of trade associations that have opposed the bureau on issue after issue over the past four years made it clearer than ever that the push for a commission is just another piece of the industry’s strategy to roll back reform and revert to the unregulated havoc that brought us the financial crisis.

Of course, they won’t give us a break. The wolves of Wall Street will keep on trying to obstruct the consumer bureau’s important work in any way they think they can. But now more people will understand what’s at stake, and we can expect more people in and out of Congress to speak out and fight hard when this bill moves to the House floor and if and when it advances any further.

October marks the seven year anniversary of the passage of the Troubled Asset Relief Program (TARP), which bailed out the financial sector during the 2008 economic meltdown. Given that the nation’s biggest banks have only gotten larger since the financial crisis, accountability in the financial sector is more important than ever, and Wall Street’s employees can be a crucial part of making that happen. That’s why it is good news that an alliance of workers, advocates, and lawyers have come together to launch Whistleblow Wall Street, a new website that will make it easier to expose wrongdoing in the banking industry.

The 2010 Wall Street Reform and Consumer Protection Act created new protections for whistleblowers, including prohibitions on retaliation. But even with these new safeguards, it can be hard to figure out what to do with information about misconduct. So as a part of the launch, the Government Accountability Project, a not-for-profit legal organization specializing in whistleblowing cases, has volunteered to help anyone who is considering blowing the whistle, or who has already blown the whistle and needs help because of reprisal.

To draw attention to the campaign, a series of billboards are going up throughout the financial district in New York encouraging Wall Street employees to blow the whistle on abuse and corruption in their firms, with the message “See Something? Do Something!”. In addition, members of the Committee for Better Banks – a coalition of bank workers, advocacy and labor organizations working to improve conditions in the financial industry – will be handing out leaflets at financial centers in New York City, Washington D.C., St. Louis, and Orlando.

Former CitiBank executive Richard Bowen, who himself blew the whistle on subprime mortgage fraud, has urged fellow financial sector employees to not give in to “fear or a misplaced sense of company loyalty,” but instead to “Please, say something! Show personal integrity and report behavior that may be harming others.” The Whistleblow Wall Street platform aims to empower workers like Bowen to speak up when they see wrong-doing, so they can be part of making sure that abuses like those that that led to the last crisis are not allowed to flourish unchecked.

Two years ago, the Dodd-Frank and Affordable Care acts of 2010 were widely regarded as the biggest accomplishments of the Obama administration and the 111th Congress. Why, in the presidential race of 2012, do we hear so much about the first and so little about the second?

When he signed Dodd-Frank into law, President Barack Obama said it would not only “put a stop to a lot of the bad loans that fueled a debt-based bubble” but also “rein in the abuse and excess that nearly brought down our financial system.”

Mitt Romney promised to repeal the statute: writing tough rules for the financial sector, he explained, was like “pouring molasses” on the economy.

More recently, neither man has had a great deal to say about financial reform or about the continuing backroom battles over new restraints on derivatives trading, the independence of the new Consumer Financial Protection Bureau, and the implementation of the so-called “Volcker rule,” among other issues.

Hoping to draw the candidates out on these matters, Americans for Financial Reform sent a list of ten proposed questions to the moderators of the debates that get underway next Wednesday night in Denver, Colorado.

1. Should the Dodd-Frank Wall Street reform law be implemented or repealed? If you’d like to see it repealed, what would you do instead? Can you point to any particular pieces of the law that you would keep?

2. One of the centerpieces of Dodd-Frank was an effort to regulate the shadowy world of derivatives – the bet-like securities that played a huge role in bringing on the 2008 financial crisis by spreading the risks of bad mortgages to financial institutions around the world. Do you support or oppose current efforts to exempt substantial areas of the derivatives market from new regulations?

3. A number of former bankers, including Citicorp creator Sandy Weill, now argue for breaking up the big banks and restricting those with taxpayer insurance to relatively safe and traditional loan-making activities. What is your view?

4. The Dodd-Frank Act created a Consumer Financial Protection Bureau? Do we need a financial regulator whose focus and mission is consumer protection? What is your position on congressional proposals to limit the CFPB’s funding or independence?

5. Do you support the Volcker rule, which prohibits taxpayer-insured banks from engaging in excessively risky practices such as investing in hedge funds or trading derivatives?

6. Have the Justice Department and other federal law enforcers done enough to investigate and prosecute the bankers and lenders whose actions led to the financial meltdown? If not, what steps would you take to energize these efforts?

7. From the bailouts to financial reform, members of Congress on both sides of the aisle have said that Wall Street wields too much influence in Washington? Do you agree? If so, what would you do to reduce its political clout?

8. Financial sector profits account for nearly 30 percent of all corporate earnings, double the proportion of a few decades ago. Should this be a source of concern? What can be done about it?

9. Do you favor a financial transaction tax, or FTT, that would fall largely on high-speed traders and speculators? Proponents say that a small fee spread over many transactions could generate several hundred billion dollars a decade in revenue, limit high-speed trading and volatility, and help restore a long-term perspective to the investment world. Opponents argue that an FTT would interfere with market liquidity.

10. Do you agree with those who point to a financial-sector pattern of extravagant pay linked to short-term profits or stock gains as one of the drivers of the financial meltdown? What if anything should the federal government be doing about this problem?

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